Going your own way isn't smart

Regulatory fragmentation militates against efficient risk pooling

Local regulators ae beginning to shy away from globally-aligned policy reforms. With the rise of populism, the chances of global standards being agreed and implemented have decreased, while territorial approaches to supervision are on the rise. For the re/insurance industry, this could threaten global diversification of risk pools and the efficient management of capital.  
Regulatory fragmentation is exacerbated by a trend towards extraterritorial application of domestic rules.

Risk of economic nationalism

After the financial crisis of 2008, the G20 significantly heightened regulatory efforts to work towards global standards by founding the Financial Stability Board (FSB). Among other things, the FSB developed a global insurance capital standard and promoted group supervision and supervisory cooperation. However, rising popular discontent with the current economic and political order in the world’s developed economies could lead governments to withdraw from international regulatory standard-setting efforts and adopt tenets of economic nationalism.

Since this development may potentially impede insurers’ ability to engage in cross-border capital management, regulatory fragmentation is a particular concern for international insurers who support the benefits of diversification by pooling capital centrally.

In a fragmented regulatory world there is much less opportunity to efficiently pool risks. It therefore increases the operational costs. Uncoordinated regulatory approaches will be less effective in promoting financial stability and could undermine re/insurers’ ability to support economic activity and close the protection gap. This is just one of the potential emerging risks analysed in Swiss Re's 2017 SONAR publication.

Supporting financial resilience

Re/insurance supports financial resilience by acting as a shock absorber and promoting growth through its core businesses. This is particularly important in a challenging and volatile macro-economic environment.

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